Suppose there is only one bank in your area. That bank has a Rule that the depositors can’t directly deposit the amount, rather they are required to pay the amount to someone else (Say Mr. X). If Mr. X doesn’t deposit your funds specifying your account number, then the bank will not give you the Credit.
Now compare the Bank with the GST Law, you as the depositor and Mr. X as your supplier. You need to pay taxes to the supplier and if the supplier does not pay taxes to the Government, then you are not eligible for the Input Tax Credit [Section 16(2)(C) of the CGST Act 2017. Now this is the law of the Land and if you do not follow it, then there will be litigation. There is a very interesting case law in this regard, where The Hon’ble Madras High Court in M/S. D.Y. Beathel Enterprises versus The State Tax Officer has quashed the order imposing GST liability on the recipient on account of non-payment of tax by the supplier of goods. But if you want to avoid litigations, Notices of GSTR 2A vs. GSTR 3B mismatches etc. then the best way is to use available information to identify whether the Supplier is trustworthy and tax compliant or not
Information available along with degree of relevance:
Many useful information is available in the GST Common Portal which can help you to identify tax compliant suppliers. You can fetch the information just by using the supplier’s PAN card number. Here is the summary image containing the list of details which are available in the GST Common Portal and degree of relevance to identify whether or not the supplier is trustworthy & tax compliant.
How to access informations:
Step 1: Login to the GST Common portal and Navigate to Search Taxpayer à Search by PAN
Step 2: Enter the PAN number and click on search.
Step 3: List of all the GSTIN obtained using that PAN Number will be displayed. Click on any GSTIN.
Step 4: Click on Search. You will get all the above details except Place of Business, Filling details, E-waybill details.
Step 5: To get the GST Return Details, click on “Show Filling Table”. To get the E-waybill Details, click on “E-Waybill History” and to get place of business details, click on “Place of Business Details”
See the below image to get an idea about the detail’s availability
As you can see that among 21 details, only 4 are highly relevant. Read this short summary to understand how you can analyse the available information.
1. Return Filling Table: This is the most important information. Here you can see the filling month and Date of filling of all the GST Returns filed by your supplier. You can compare the actual filing date with the due date and if your supplier does not file the returns regularly in the past, then you may expect that he/she will delay in future too. For the delay/non filing of returns, you might face disallowance of Input Tax Credit. You need to be careful before dealing with these types of suppliers.
2. GSTIN/UIN Status: If the Status is anything other than “Active”, you should avoid dealing with the supplier. The status can be inactive, cancelled Suo-moto, cancelled on application by the taxpayer or suspended. In all these cases, the supplier can not pass on the Input Tax Credit. In other words, the supplier’s GSTIN should be in “Active” status.
3. Tax Payer Type: Type as “Regular” can collect GST and issue Tax Invoice. Other types of taxpayers such as composition, Tax Collector, ISD can not issue tax invoice. Thus, if you receive any Goods and/or Services, check whether the Taxpayer type is “Regular” or not.
4. E-Waybill History: If returns of two consecutive tax periods are not filled, then the generation of E-Way Bill will be restricted for all types of outward supply. You will get the details of restrictions imposed on e-waybill generation (if any) and the period of restriction. If there are no details, then it can be concluded that the supplier is tax compliant.
What are moderately relevant details for identification?
1. Number of GST Registration obtained using the same PAN: A person is required to obtain a separate GST Number for each state if he is doing business from multiple states. Also, A person may obtain multiple registration in the same state. When you search Taxpayer using PAN, you will get the list of all the GSTIN obtained using that PAN. Higher number of registrations indicated that the business is situated at multiple places. Usually, persons having multiple registrations are more tax compliant.
2. Date of Registration: Older the GST Registration date, better the chances of tax compliances by supplier because in GST, for each day of delay, there are late fees. Also, officers can cancel the GST number if returns are pending to be filled for multiple months. Thus, if the registration date is old and status is Active, then you can rely on the supplier.
3. Constitution of Business: Generally, companies are better tax compliant than proprietorship or partnership businesses because companies need to fulfil compliances of Companies Act too.
4. Annual Aggregate Turnover:Higher turnover can be an indicator that the supplier is tax compliant. In India, many tax compliances of various Acts are linked with Turnover. In other words, higher the turnover, higher will be the number of compliances. For each non-compliances, there are separate penalties. Thus, a business having higher turnover generally does not take the risk of non-compliance.
5. Nature of Business Activity: A business can undertake multiple business activities such as retail, wholesale, export, import, SEZ supply, Service providers etc. Generally, a business which has multiple business activities is more tax compliant.
6. Place of Business: A business can have multiple branches, sales offices or multiple Wearhouse. Higher number of addresses indicates that the business is situated at multiple locations. Higher the number of places, better the chance that the supplier is tax compliant.
Details which are not very strong indicators
1. Gross Total Income: If a business has high Income, then you can conclude that they can be a tax compliant supplier.
2. Percentage of Tax Payment in Cash: If a business is paying taxes using cash ledger, then this detail indicates how much percentage of total tax payment is made using Cash Ledger. Higher Percentage is better.
3. Whether Aadhaar Authenticated: Due to increased Fake Invoicing cases, businesses are required to do Aadhaar Authentication. “Yes” is better.
4. Whether e-KYC verified: Due to increased Fake Invoicing cases, businesses are required to do e-KYC verification. “Yes” is better.
5. Nature of Core Business Activity: In GST the core business activities are – Manufacturer, Trader, Service Provider & Others. If a supplier’s core business activity is manufacturing, then you can conclude that they are not a regular or large service provider. If they are supplying you Goods, then the chance of compliances is better.
6. Trade Name: This is the name of the business which is known by the public. Usually, businesses are known by their Brand name. Popular brands are better tax compliant.
Above 6 details are not very relevant to determine whether the supplier is tax compliant or not. You need to consider the other indicators along with these to come to a conclusion.
Details which are not relevant:
Details such as State GST Jurisdiction, Centre GST Jurisdiction, Name as per PAN i.e., Legal Name, details of Goods or services and the name of owners/ important persons are not relevant for determination of the tax compliant nature of business.
You can use the information and make decisions accordingly whether you want to deal with the supplier or not because prevention is better than cure.
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